After almost three years, there are still uncertainties regarding the details of intergenerational and base-year transfers for seniors and the disabled according to Proposition 19.

In November 2020, Californians voted for Proposition 19, altering property tax rules for intergenerational transfers and base-year transfers for those 55 and older, disabled, or disaster victims. Nonetheless, both taxpayers and tax pros still have lingering inquiries about the modifications brought by Proposition 19. This piece dives into the often-asked questions on this matter.

Proposition 19 had a significant impact on property tax benefits for family transfers. For transfers after February 16, 2021, the principal residence exclusion required the receiving child to reside in the property as their main home within a year, with an exclusion of the first $1 million in assessed value. This amount is indexed for inflation starting in 2023, set at $1,022,600 from Feb 16, 2023, to Feb 15, 2025. Non-principal residence exclusions were removed, except for family farms. However, it doesn’t apply to properties in certain entities or irrevocable trusts but does for those in living trusts, becoming irrevocable at death if transferred to a qualifying relative. The exclusion applies even if a parent, after transferring a home to one child, later moves and transfers another home to a different child.

Regarding what happens when a child moves out if the property is transferred to a child, the exclusion lasts as long as they reside there. However, if the child leaves and rents out or uses it as a vacation home, the exclusion ends. The property’s base-year value is determined by the fair market value (FMV) at the time of inheritance, adjusted for inflation each year the child lived in it.

In terms of base-year transfers, starting April 1, 2021, Proposition 19 expanded the ability for those over 55, disabled, or disaster victims to transfer their property tax-adjusted base-year value to a replacement property anywhere in the state, not limited to certain counties. Seniors, disabled taxpayers, and disaster victims can now purchase a replacement property of higher value while maintaining the assessed value of the original property. The replacement property’s assessed value is the original property’s assessed value plus the difference in fair market value (FMV) between the two properties, allowing flexibility for property upgrades. For more information visit our website: https://www.bastacpa.com/